Pushed by shareholders to disclose your corporation’s political contributions and lobbying activities? You are not alone.

The same Supreme Court decision that has befuddled the IRS and embarrassed the Obama Administration may soon impact corporate reporting to the SEC.  Citizens United, the 2010 Supreme Court case, allows corporations to donate funds to political campaigns, giving corporations a silent but potentially potent impact on elections.

(Demanding transparency, the Committee on Disclosure of Corporate Political Spending petitioned the SEC in August 2011 for regulations requiring that corporations make their political donations public. This petition generated over half a million comments.) The SEC is expected to announce new requirements in the near future.

Getting a jump on the SEC, activist shareholders continue to push proposals to require the disclosure of contributions and corporate lobbying efforts.  However, these efforts have been successfully fought, with stockholders voting against the few proposals that made it to a vote.

Since January of this year, at least 24 S&P 500 companies asked the SEC to exclude shareholder proposals that sought to either disclose or report their political contributions or lobbying efforts.  The SEC rejected at least 10 of these requests by issuers such as Abbott Labs, Exxon Mobil, Goldman Sachs, and Western Union. The SEC denied Bank of America’s request to reconsider.  JP Morgan withdrew its exclusion request and chose to include the proposal on its 2013 proxy.

So far this year, activist stockholders forced six companies to include political contribution proposals at their annual meetings.  None were approved.

Yet, some issuers independently developed policies for making and reporting political contributions.  Caterpillar, Raytheon and UnitedHealth Group all included information in their proxies and on their websites outlining these policies.

Raytheon states: “We disclose on our website a description of our oversight process for political contributions and a summary of direct corporate contributions, including those to state and local parties and candidates, and organizations operated in accordance with Section 527 of the U.S. Internal Revenue Code. This section of the website also includes information on lobbying activities at the federal and state level. This disclosure is available on our website … under the heading ‘Investor Relations/Corporate Governance/Political Contributions and Lobbying Expenditures’.”

UnitedHealth Group “disclose[s] our political contributions and public advocacy efforts and the contributions of our federal and state political action committees on our website and as required by law.”

Thinking about your next shareholder meeting?  Concerned about the SEC’s potential rulemaking?  The Intelligize platform provides critical information, allowing you to compare how corporations handle political disclosure issues as well as a wide array of other issues.  See how other Fortune 500 companies report these contributions and describe their lobbying efforts.  The information can be yours.  Learn more at intelligize.com.

SEC Guidance on Social Media and Regulation FD

The U.S. Securities and Exchange Commission (SEC) issued a Report of Investigation on April 2, 2013 providing guidance on the use of social media as a method of disclosure under Regulation Fair Disclosure (Regulation FD).  The report was precipitated by an SEC investigation into a Facebook posting by the Netflix Chief Executive Officer regarding usage by Netflix members.  This investigation raised two questions. The first was “the application of Regulation FD to” the Facebook post. The second question was the applicability of the SEC’s August 2008 Guidance on the Use of Company Web Sites in relation to emerging technologies such as social media.

Netflix filed an 8-K on December 6, 2012 reporting the receipt of a Wells Notice from the SEC for the company and Chief Executive Officer Reed Hastings alleging violation of Regulation FD. The potential violation regarded a July 3, 2012 Facebook posting by Mr. Hastings reporting “that our members had enjoyed over 1 billion hours in June” of Netflix according to his statement attached to the December 8-K. The July 2012 Facebook posting was not followed by a current report on 8-K or a press release distributed through normal channels.  Regulation FD was issued in August 2000 requiring the intentional disclosure of material, nonpublic information be done through a “broad and non-exclusionary distribution to the public” in an effort to avoid “selective disclosure” to specific audiences such as analysts or selected investors. The regulation also requires any inadvertent disclosure of information to be promptly followed by a public dissemination. The SEC has also stated that the regulation “does not require use of a particular method, or establish a ‘one size fits all’ standard for disclosure”. In August 2008 the SEC issued guidance on disclosure under Regulation FD in response to the increasing use of web-sites to distribute information.

Based on the 2008 guidance and Regulation FD the SEC focused the investigation onto the question of whether Netflix had made “investors, the market and the media aware of the channels of distribution it expects to use” for the disclosure of material information. The SEC did not bring an enforcement case against Netflix or Mr. Hastings or allege any wrongdoing but did conclude that the “personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information”.

The SEC recognized the increasing use of social media channels by public companies since the release of the August 2008 guidance and recommended that issuers analyze any disclosures made through social media for compliance with Regulation FD and that they notify investors and the market about the channels they intend to utilize to distribute material, nonpublic information.

March 14, 2013

IRANNOTICE Filings

As of February 6, 2013, issuers filing annual or quarterly reports with the U.S. Securities and Exchange Commission (“SEC”) under the Exchange Act of 1934 (“Exchange Act”) were required to disclose transactions with Iran. The Iran Threat Reduction and Syria Human Rights Act of 2012 (the “Threat Reduction Act” or “ITRA”), imposes new liabilities on subsidiaries or foreign entities owned or controlled by U.S. companies.  In addition, Section 219 of the “Threat Reduction Act” added a new Section 13(r) to the Exchange Act requiring the disclosure of transactions and other activities with Iran (and Syria) by any issuer, both domestic and foreign, required to file annual or quarterly reports under Section 13(a) of the Exchange Act during the period covered by the report and also to file a separate notice of this disclosure on a new form titled IRANNOTICE. The required disclosure in the reports includes the nature and extent of the activity, gross revenues and net profits attributable to the activity and whether the issuer or affiliate intends to continue the activity.  There have been 102 notices filed by various companies across several industries as of March 13, 2013.

On August 10, 2012 President Obama signed the “Threat Reduction Act” expanding the scope of sanctions towards Iran.  The act “seeks to tighten the chokehold on the regime beyond anything that has been done before” according to bill proponent Representative Ileana Ros-Lehtinen.    Public companies face the additional reporting requirements if they engage in certain prohibited transactions involving Iran.  A company must file a separate notice of the disclosure for publication on the SEC’s website, which triggers SEC reporting to the President and a subsequent determination by the executive branch regarding the imposition of sanctions upon the company.  Companies must comply with the disclosure requirements through the filing of any 10-K, 10-Q or 20-F due on or after February 6, 2013. Two issuers, Novartis and Schlumberger, filed notices prior to February 6.

The majority of the companies disclosing potential violations do not have a direct business relationship with Iran.  Instead, because of the SEC’s broad definition of the term affiliate, reporting companies have often selected to pursue a conservative approach to disclosure by utilizing the broadest designation of affiliate. In several instances this has resulted in private equity portfolio companies or investments reporting under the Threat Act because one of the entities within the portfolio reported a potential violation and triggered duplicate reporting by several issuers regarding the activity of the individual entity.

For example Warburg Pincus has a financial stake in Bausch & Lomb, which reported to Warburg Pincus potential violations based on the extension of Office of Foreign Asset Control (OFAC) sanctions to non-U.S. affiliates of U.S. issuers in October 2012. Based on this Fidelity National Information Services, MBIA, Primerica and Neiman Marcus all reported the Bausch & Lomb report because of their affiliation with Warburg Pincus. Another example is the Blackstone Group’s investment in TRW Automotive and Travelport, which both reported to Blackstone potential activities related to Iran. This triggered disclosure of the Travelport and TRW Automotive activity by Cheniere Energy, Freescale Semiconductor, Nielsen, Orbitz Worldwide, Pinnacle Foods Finance and Sabine Pass LNG, LP due to their affiliation with Blackstone.  A disclosure by LyondellBassell Industries resulted in the generation of an additional 10 corporate reports disclosing the same information by several issuers as diverse as NCL Corp, Seven Seas Cruises and Warner Music due to their affiliation with Apollo Global Management which holds approximately 19.6% of the ordinary shares of LyondellBassell.

Because of the sensitivity and objective of the “Threat Reductions Act,” companies are utilizing a proactive strategy to preclude any incremental investigation when determining both the reporting requirements and the level of disclosure.  British Petroleum (BP) has taken this tact and generated an extremely robust and detailed reporting of their activities.  BP goes as far as to disclose a project with Iranian nationals who were students studying in Canada:

”BP has become aware that a Canadian university had been using graduate students, some of whom were nationals of Iran, on research programme funded in part by BP.  BP has suspended such programme and made an initial voluntary disclosure to the US Treasury Department’s Office of Foreign Asset Control (‘OFAC’), and is currently reviewing these activities to determine to what extent if any the activities may have violated OFAC Regulations.”

The level of disclosure indicates the significant time and expense that must have been incurred while investigating potential reportable activity with Iran. This may also forecast the effort required to comply with the Conflict Minerals disclosure that will initially be filed next year. Certain companies may find themselves having to report under both rules. Issuers such as Delphi Automotive, Dover Corp and Verifone Systems have filed IRANNOTICEs and also disclosed a potential requirement under the Conflict Minerals rule.

Much of the current disclosure regarding activities with Iran illustrates the uncertainty surrounding the definition of affiliate with a broad interpretation driving the potential for corporate over reporting.  As all submitted disclosures are delivered for assessment to the executive branch, over reporting may indeed become problematic. However, because the objective of the act is to diminish exposure through the minimization of corporate or financial activity in Iran, it is undetermined if the executive branch will suggest or recommend the SEC act to hone or further qualify the various reporting determinants.  This may also be done through the SEC’s review of the disclosures and subsequent comments that may be issued. Currently it appears that corporate counsels are advising companies to utilize caution and “over-report” any and all connections to any business activities within Iran.

February 14, 2013

Recent Merger Antitrust Cases

While campaigning for his first term President Obama promised stricter enforcement of the antitrust laws. The first term of the Obama administration saw revisions to the Horizontal Merger Guidelines in August of 2010 by the Department of Justice and Federal Trade Commission. These revisions were the first in almost 20 years and aligned the existing agency practices with the guidelines allowing greater flexibility in the analysis of transactions. The Department of Justice also filed two major cases challenging mergers during the first Obama term. The first was filed in May of 2011 to prevent H&R Block’s acquisition of 2SS Holdings, developer of TaxACT, a do-it-yourself tax preparation software. The United States District Court for the District of Columbia granted the request for a preliminary injunction on October 31, 2011. H&R Block terminated the merger agreement with 2SS Holdings on November 14, 2011. The second case was filed in August of 2011 seeking to block AT&T’s acquisition of T-Mobile USA from Deutsche Telekom. AT&T announced the termination of the acquisition on December 19, 2011 following a subsequent indication from the Federal Communications Commission that it would also challenge the acquisition. This past January the Department of Justice filed two more complaints against Bazaarvoice and PowerReviews and the second case against Anheuser-Busch Inbev and Grupo Modelo.

The two major federal antitrust enforcement agencies are the United States Department of Justice (DoJ) and Federal Trade Commission (FTC).  The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) requires notification of certain proposed transactions to the FTC and DoJ that allows the agencies to review the transaction over a specified waiting period. The transaction can be completed following expiration of the waiting period or through the granting of an early termination request of the waiting period by the agencies. The agencies may request additional information from the transaction parties which extends the waiting period. Antitrust merger enforcement may seek remedies that block the merger, require a divestiture of assets or institute limitations on the post-transaction entities conduct. These remedies can be accomplished through a civil or administrative complaint requesting specific actions including a halt to the transaction or a “fix-it-first” solution suggested by the parties prior to closing of the transaction.

The DoJ complaint filed January 31 against Anheuser-Busch Inbev’s acquisition of the remaining interest in Grupo Modelo alleged a potential decrease in competition within the $80 billion U.S. beer industry. The acquisition was announced on June 29, 2012 and included the sale of Grupo Modelo’s interest in Crown Imports, the U.S. distributer of its products to Constellation Brands, Grupo Modelo’s joint venture partner in Crown Imports. In its press release announcing the complaint the DoJ referenced this attempt at a remedy of the anticompetitive aspects of the transaction as inadequate noting that the combined company would control approximately 46% of annual sales in the United States. Anheuser-Busch Inbev responded in a January 31 press release that the action “is inconsistent with the law, the facts and the reality of the market place”. Constellation Brands and Crown Imports have filed a Motion to Intervene as parties to the antitrust case and Anheuser-Busch Inbev has filed a memorandum in support. The case is currently pending in the United States District Court for the District of Columbia.

The second case by the U.S. Department of Justice was filed January 10 regarding the acquisition of privately-held PowerReviews Inc. by publicly-traded Bazaarvoice Inc. Both companies provide online product rating and review (PRR) platforms to retailers and manufacturers.  The DoJ complaint alleges Bazaarvoice acquired PowerReviews solely to eliminate competition stating “Bazaarvoice believed the acquisition of PowerReviews would eliminate its most significant competitive threat and stem price competition”. Unlike the Anheuser-Busch Inbev-Grupo Modelo case, the Department of Justice brought this case over six months after the acquisition closed on June 12, 2012. According to the DoJ press release announcing the complaint, “Bazaarvoice’s acquisition of PowerReviews was not reported under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which requires companies to notify and provide information to the department and the Federal Trade Commission before consummating certain acquisitions. The department began its investigation shortly after the transaction closed.” Bazaarvoice responded to the complaint in a press release of its own attached to a January 11 8-K stating, “contrary to earlier reports, Bazaarvoice complied with the letter and spirit of the Hart-Scott-Rodino Act. Bazaarvoice was not required to report this transaction under the Hart-Scott-Rodino Act because PowerReviews was so small it failed to meet the government’s own required “size-of-person test” that triggers mandatory notification and pre-clearance process. We are surprised that the DOJ would choose to invest scarce and valuable resources in challenging a consummated transaction of an entity that made under $12 million in revenues in its most recent fiscal year.” The Department of Justice filed a similar suit in January 2010 against Dean Foods over its acquisition of Foremost Farms’ Consumer Products Division which fell below the reporting thresholds of the Hart-Scott-Rodino Act. Dean Foods was forced to divest a dairy plant in Waukesha, Wisconsin as part of a settlement.  The Bazaarvoice case is currently pending in the United States District Court for the Northern District of California.

The Federal Trade Commission was also involved in recent enforcement proceedings. On December 18, 2012 the FTC filed an administrative complaint seeking to stop the proposed acquisition of integrated circuit manufacturer PLX Technology (PLX) by Integrated Device Technology (IDT). The FTC complaint states that the PLX acquisition would create a near-monopoly of the market for Peripheral Component Interconnect Express (PCIe) switches used in computers and other electronic devices. The acquisition was announced on April 30, 2012 and IDT voluntarily withdrew its premerger Notification and Report Form following consultation with the FTC and PLX on June 5, 2012. IDT re-filed the form on June 6, 2012. On July 6, 2012 the FTC requested additional information from IDT and PLX. IDT and PLX terminated the merger on December 19, 2012.

Other recent notable cases include the acquisition of Central Parking by Standard Parking which closed on October 2, 2012. The Department of Justice filed a complaint and proposed settlement on September 26, 2012 requiring the divestiture of off-street parking facilities in 29 cities. On September 4, 2012 DoJ issued a news release stating that 3M had abandoned its proposed acquisition of Avery Dennison’s Office and Consumer Products Group. Interestingly, 3M and Avery Dennison issued a joint news release stating that they had not terminated the transaction but had voluntarily withdrew the premerger Notification and Report Form but one month later the parties announced the termination of the transaction. Avery Dennison announced a new transaction on January 30, 2013 to sell its Office and Consumer Products and Designed and Engineered Solutions businesses to CCL Industries.

Based on these recent filings there does not appear to be a slowdown in federal challenges to acquisitions deemed anticompetitive.  On January 3, 2012 William J. Baer was sworn in as the Assistant Attorney General for the Antitrust Division of the Department of Justice.   Mr. Baer was the former Director of the Bureau of Competition at the Federal Trade Commission from April 1995 through October 1999 during the Clinton administration.

If you are unable to view the transaction links above and are interested in a trial demonstration of the Intelligize M&A Researcher platform please contact us at 888-925-8627 or email info@intelligize.com.

Analysis of Public Filings Identifies the FCPA as a Top Risk to Operating Companies
By Nicole Di Schino

Despite the idiosyncratic risks that grabbed headlines during the fourth quarter of 2012 – Hurricane Sandy,
the fiscal cliff and deepening uncertainty on the Euro zone periphery – a more constant risk continued to
loom large in board rooms and corner offices. According to an analysis of late 2012 public filings by
Intelligize, a corporate compliance resource provider, the FCPA was one of the most commonly mentioned
risk factors in public company disclosures.

FCPA Listed as One of the Top Five Risk s in Public Filings:

Intelligize CEO Gurinder Sangha told The FCPA Report that he published the whitepaper to draw attention
to risks faced by many companies. “While we can’t name specific companies, we were hearing about
these issues and we wanted to validate them.” To this end, Intelligize preformed a “clausal analysis” of all
public filings released during the previous 90 days, including the filings of all 5,000 public companies that
conduct regular reporting.

The top five risks that Intelligize identified were “government spending and the post-fiscal cliff economic
landscape, global economic uncertainty, new executive compensation disclosure requirements, disaster
preparedness (Hurricane Sandy) and the Foreign Corrupt Practices Act.” Sangha observed that “what’s
interesting about the FCPA is that the other issues that we mentioned were much more current affairs
based,” yet the FCPA has been around for 35 years. “Yes, the fiscal cliff is important,” Sangha said, “but
actually the FCPA was more important just in terms of volume of data that we’ve seen. Given the new
Resource Guide and the commitment that the DOJ and the SEC have given to FCPA enforcement, this is
still an important issue and is still in the top of the minds of compliance officials in public companies.”

For more information on the FCPA Resource Guide jointly issued by the DOJ and SEC in November 2012, see
“DOJ and SEC Officials Provide Candid Insight into the Recently Issued FCPA Guidance,” The FCPA
Report, Vol. 1, No. 13 (Nov. 28, 2012).

More Companies Are Listing the FCPA as a Risk in Public Filings:

Intelligize’s analysis shows “well over 500 references by companies to the FCPA in their SEC filings over
the past 90 days.” Sangha told The FCPA Report that this number is not an aberration. “What we are
seeing is that the number of mentions of the FCPA in public filings is actually holding steady over the last
year. Just as an example, in the fourth quarter of last year there were 898 references to the FCPA, in the
third quarter there was 923, in the second quarter there were 1,008 and the first quarter had 1,302. So,
pretty steady over the last year – it’s an issue that’s not going away and people are still disclosing,” said
Sangha. He also noted that there has been a steady increase in mentions of the FCPA in public filings
over the past five years. Sangha explained that in 2008 there were 1,776 references to the FCPA, by 2010
the number of references had climbed to 3,321, and in 2012, it jumped to 4,131.

FCPA Risk s Detailed in Various Parts of Public Filings:

FCPA as a Risk Factor-
When reviewing public filings “you’ll see the FCPA mentioned in a handful of spots quite regularly,” said
Sangha. He explained, “first, you’ll see it under risk factors. You either see it mentioned in terms of failure
to comply with ongoing regulations or you will see an individual, unique, United States Foreign Corrupt
Practices Act risk factor – companies conveying that they have international operations and they’re
compliant with the rules and regulations of the FCPA.”

For example, Sangha explained, a filing released by Google stated: “we are required to comply with the
United States Foreign Corrupt Practices Act, or the FCPA, which prohibits U.S. companies from engaging
in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business.
Although we inform our personnel that such practices are illegal, we cannot assure you that our employees
or other agents will not engage in such conduct for which we might be held responsible. If our employees
or other agents are found to have engaged in such practices, we could suffer severe penalties. Non-U.S.
companies, including some of our competitors, are not subject to the provisions of the FCPA.” Sangha
explained that this language was representative of the language used by many companies in public filings.
“You will also sometimes see the FCPA mentioned in forward-looking statements, companies will include
blanket language that the FCPA applies to them,” explained Sangha. A lot of the entries are boilerplate
legal protection.”

FCPA Internal Review or Investigation-
“What’s really interesting is when you look at companies that are under investigation or conducting an
internal review, those will be disclosed under either legal proceedings or the notes to the financial
statements, generally in the commitments and contingencies footnotes,” he said. “A lot of the non-boiler
plate FCPA entries, especially the investigations or internal reviews, are located there.”

Sangha noted that “in 2012 there were 12 enforcement actions by the SEC under the FCPA. Looking at
the filings from the last 12 months, we’ve seen 91 companies disclose that either the government is
conducting an investigation or they’re conducting a voluntary review under the FCPA, which leads me to
conclude that something happened to compel them to conduct that review.”

THE FCPA Report Vol. 2, No. 3 February 6, 2013

Intelligize identifies top five risk concerns facing C-suite executives, In-house counsel and law firms in 2013

Government spending and global economic uncertainty top the list

NEW YORK – INTELLIGIZE, a corporate compliance resource provider for C-suite executives, in-house counsel, law firms and accounting professionals, has released a white paper, Managing Risk Better, identifying trends and uncertainties anticipated by multinational corporations in the growth outlook in 2013.

Overall, Intelligize expects that companies will delay making decisions with respect to hiring, business expansion, and inventory, stating economic “uncertainty” as the main reason in their SEC filings.

Intelligize has identified five key concerns based on an analysis of recent SEC filings:

● Government spending and the post-fiscal cliff economic landscape

● Global economic uncertainty

● New executive compensation disclosure requirements

● Disaster preparedness (Hurricane Sandy)

● Cross-border business landscape (including FCPA)

CEO and founder of INTELLIGIZE, Gurinder Sangha, Esq., a former capital markets attorney for Shearman & Sterling LLP, New York City, and White & Case LLP, Hong Kong, developed Intelligize’s software to more easily analyze SEC filings. “Companies are disclosing much more information than before. In fact, the average annual report on Form 10-K has doubled in size over the last decade,” says Mr. Sangha. “Consequently, more resources are being allocated to handle them.”

Managing Risk Better in 2013 white paper is accessible here http://intelligize.com/wp-content/uploads/Intelligize-Final-1-7-13.pdf.

For more information about our services, please visit our website www.intelligize.com or call 1-888-925-8627.

INTELLIGIZE, Inc., a New York based corporate compliance resource provider for C-suite executives, in house counsel, law firms and accounting professionals, is a leading provider of Web-based tools and resources essential in the compliance and review process. The Company’s powerful business intelligence tools streamline the Securities and Exchange Commission (SEC) compliance and review process. Its clients include IBM, Verizon, Chevron, Microsoft, and one-third of the Dow Jones Industrial Average (DJIA) components. Specific applications of INTELLIGIZE include Comment Checker, SEC Checker, M&A Researcher, and Corporate Governance. For more information, please visit our website at www.intelligize.com or call 1-888-925-8627.

MANAGING RISK BETTER - AS REFLECTED IN SEC FILINGS

Since the advent of Sarbanes-Oxley and its related regulations a decade ago, corporate filings with the Securities and Exchange Commission (SEC) have become more complex, voluminous and time-consuming to prepare and analyze. Concurrently, the costs of regulatory compliance, in particular the legal and accounting expenses, have risen sharply.

For the complete whitepaper, please click here:  Managing Risk Better

UPDATE: The “fiscal cliff” is now less than 24 hours away and as the sense of uncertainty continues among issuers so does their disclosure. Seaworld Entertainment disclosed in its 12/27/12 IPO registration  risk factors the uncertainty surrounding “the so-called fiscal cliff” and the potential impact on theme park attendance. Ark Restaurants was even more direct stating “failure to avoid the “fiscal cliff” may adversely impact our business” in its 12/28/12 10-K risk factors. Congressional inaction at this time will only generate increased disclosure as the impacts of the “fiscal cliff” begin to be felt in 2013.

About Intelligize
Intelligize, Inc. is the leading provider of SEC solutions tools that are Simpler, Faster and Smarter in providing professionals with resources for SEC research, peer analysis, and compliance.
On the Web: www.intelligize.com
To log in: apps.intelligize.com

Intelligize CEO and founder, Gurinder Sangha, was interviewed by the Walt Street Journal for his opinion on the Reg FD issue surrounding Netflix. The entire article can be found below.

In February of 2012 Federal Reserve Chairman Ben Bernanke coined the term “fiscal cliff” before a House Financial Services Committee hearing. The combination of potential tax increases and mandated spending cuts is not only causing political drama in Washington but anxiety among issuers filing with the Securities and Exchange Commission (SEC). The specter of a “fiscal cliff” can be seen in risk factor disclosure as well as influencing companies to accelerate dividend payments to this year instead of 2013 or issue special dividends before the end of 2012.